2018 (10) TMI 56 - AT - Income Tax

Claim of exemption u/s 54F denied - addition on the ground that assessee has not utilized the capital gain amount within the time prescribed u/s 139 (1) - due date mentioned in section 54 (2) would be the due date of return of income u/s 139 (1) or the date by which the assessee filed the return u/s 139 (4) - Held that - The assessee vehemently stated that the assessee had made substantial investment towards the purchase of new property and because builder could not complete the construction of the residential house, therefore, the claim of exemption cannot be denied as per CBDT Circular No.471 dated 15.10.1986 and 672 dated 16.12.1993. Per contra the DR strongly supported the findings of the CIT(A). The undisputed fact is that the assessee has made substantial investment towards the purchase of new residential house. The Assessing Officer himself has given exemption to the extent of ₹ 38.49 lacs as against the claim of ₹ 53.34 lacs. A similar issue arose before the coordinate bench in the case of Seema Sabharwal 2018 (2) TMI 863 - ITAT CHANDIGARH rovisions of section 54(2) are almost identically worded as in section 54F(4) of the Act. Admittedly, in this case, the assessee has invested the amount for the purchase / construction of the house within the stipulated period as also observed above while deciding the first issue. The assessee has proved such investment during the assessment proceedings and, thus, the assessee has complied with the requirement of substantive provisions and, thus, is entitled to the claim of exemption u/s 54F of the Act. In view of this, we direct the Assessing officer to grant exemption to the assessee as permissible under the provisions of section 54 - Decided in favour of assessee

Summary

Issues Involved:
1. Sustaining the addition of ?14,85,109/- due to non-utilization of capital gain within the prescribed time under Section 139(1) of the Income Tax Act.
2. Compliance with conditions for claiming exemption under Section 54(1) of the Income Tax Act.

Detailed Analysis:

Issue 1: Sustaining the Addition of ?14,85,109/-
The primary grievance of the assessee was that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in sustaining the addition of ?14,85,109/- on the grounds that the assessee did not utilize the capital gain amount within the time prescribed under Section 139(1) of the Income Tax Act. The facts of the case reveal that the assessee sold his 50% share in a house property for ?1.05 crores and disclosed a long-term capital gain of ?59,15,345/-, out of which an exemption of ?53,34,447/- was claimed under Section 54. The assessee made substantial investments towards purchasing a flat in a project developed by Vardhman Infrahome Private Limited, with payments totaling ?51,50,792.96.

The Assessing Officer (AO) opined that the assessee did not fulfill the mandatory conditions for claiming exemption under Section 54(1), as the assessee did not acquire a residential house within the specified period. The AO noted that the assessee paid only ?25,13,122/- and believed that the unutilized amount of capital gain should have been appropriated under the capital gain scheme before the due date of filing the return. Consequently, the AO allowed an exemption of only ?38,49,342/- against the claimed ?53,34,447/-, resulting in an addition of ?14,85,109/-.

Issue 2: Compliance with Conditions for Claiming Exemption Under Section 54(1)
The CIT(A) upheld the AO's decision, referencing the Supreme Court's decision in Prakash Nath Khanna (266 ITR 1), and opined that the due date mentioned in Section 54(2) would be the due date of return of income under Section 139(1) or the date by which the assessee filed the return under Section 139(4).

Before the Tribunal, the assessee's counsel argued that substantial investment towards the purchase of a new property was made, and the exemption should not be denied due to the builder's delay in completing the construction. The counsel cited CBDT Circulars No. 471 and 672 to support the claim. The Tribunal noted that the AO had already granted partial exemption and acknowledged the substantial investment made by the assessee.

The Tribunal referred to the coordinate bench's decision in Seema Sabharwal (ITA No. 272/Chd/2017), which emphasized that the primary goal of Section 54 is to promote housing and that the procedural provisions should not impose strict limitations that defeat the purpose of the substantive provision. The Tribunal highlighted that the enabling provision of Section 54(2) governs the conduct of the assessee to ensure the intention to invest in a new residential house, and strict construction of this provision would defeat the exemption's purpose.

The Tribunal also cited the Karnataka High Court's decision in CIT Vs. Shri K Ramachandra Rao, which held that if the assessee invests the entire sale consideration in constructing a residential house within the stipulated period, the exemption should not be denied even if the amount was not deposited in the capital gains account scheme.

Conclusion:
Respectfully following the findings of the coordinate bench and the Karnataka High Court, the Tribunal set aside the order of the CIT(A) and directed the AO to allow the exemption as claimed by the assessee. The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 28.09.2018.